Short & long term performance of ipo

4,268 views

Published on

Short & long term performance of ipo

  1. 1. A STUDY ON „SHORT TERM & LONG TERM PERFORMANCE OF IPO (INITIAL PUBLIC OFFER) ‟(Conducted on behalf of „India Advantage Securities .Pvt. Ltd.Majura Gate, Surat.) (From 6th January, 2011 to 6th March, 2011) A Project Report submitted in partial fulfillment of the requirements For the award of the degree of BACHELOR OF BUSINESS ADMINISTRATION TO VEER NARMAD SOUTH GUJARAT UNIVERSITY, SURAT Submitted By: DESAI PRADIP T.Y.B.B.A. (SEM –VI) Roll No: 112 Under the guidance of Ms. SWATI MEHTA Submitted To: Principal I/c PROF. V. B. SHAH INSTITUTE OF MANAGEMENT, R. V. PATEL COLLEGE OF COMMERCE, V.L.SHAH COLLEGE OF COMMERCE, R.K.SHAH WOMEN‟S ARTS COLLEGE, AMROLI (SURAT) March 2011 1
  2. 2. DECLARATION I, Desai Pradip, hereby declare that the project report entitled “SHORTTERM & LONG TERM PERFORMANCE OF IPO(INITIAL PUBLICOFFER)” under the guidance of Ms. SWATI MEHTA submitted in partialfulfillment of the requirements for the award of the degree of Bachelor ofBusiness Administration to Veer Narmad South Gujarat University, Surat ismy original work – research study – carried out during 6th January, 2011 to 6thMarch, 2011 and not submitted for the award of any otherdegree/diploma/fellowship or other similar titles or prizes to any otherinstitution/organization or university by any other person. SignaturePlace: Amroli, SuratDate: (Desai Pradip) (T.Y.B.B.A., Roll No: 112) 2
  3. 3. PROF. V. B. SHAH INSTITUTE OF ANAGEMENT, R. V. PATEL COLLEGE OF COMMERCE, V.L.SHAH COLLEGE OF COMMERCE, R.K.SHAH WOMEN‟S ARTS COLLEGE, AMROLI (SURAT). CERTIFICATE OF THE FACULTY GUIDE This is to certify that the Project Report entitled “SHORT TERM &LONG TERM PERFORMANCE OF IPO (INITIAL PUBLIC OFFER)”(Conducted on behalf of „India Advantage Securities .Pvt. Ltd.Majura Gate,.Surat‟) submitted in partial fulfillment of the requirements for the award of thedegree of BACHLOR OF BUSINESS ADMINISTRATION to VEER NARMADSOUTH GUJARAT UNIVERSITY, SURAT is a record of bonafide research workcarried out by Pradip. p. Desai under my supervision and guidance. Signature SignatureMs. SWATI MEHTA Mr. MAHENDRAV.SONI (Project Guide) Principal I/C 3
  4. 4. ACKNOWLEDGEMENT I wish to express my thanks to the officers and all the staffmembers of The „India Advantage Securities .Pvt. Ltd.Majura Gate, Surat‟for theirvaluable assistance and excellent co-operation in preparation of this project report. I wish to place on record the co-operation given me by Mr.AnilPatel (Director of The India Advantage Securities .Pvt. Ltd.Majura Gate Surat) formaking capable of teaching new things, which are helpful in our practical life thatis going on project at different places. I would like to thanks Mr. MAHENDRA.V.SONI, ThePrincipal I/c Prof. V.B. Shah Institute of Management & R.V. Patel College ofCommerce, Amroli for making available all facilities in fulfilling the requirementfor my project report. The project would have been possible throughout theexperience, guidance and supervision of Ms. Swati Mehta has potentially andcritically gone through the subject matter. Her constructive criticism helped me lotin presenting the project in concrete form. Finally, I would like to thank to all these people who aredirectly or indirectly contributed to my project work. 4
  5. 5. PREFACEIn this period fast developing and changing world. I am proud for a study ofB.B.A. full time course offered by South Gujarat University at Prof. V.B. ShahInstitute of Management, Amroli. Finance is most important parts of economics activities. Today the financialmanagement is branch of business administration. The firm or management canaccept or reject proposal on the basis of financial statement. So I am selecting thespecialized subject of Finance. Today, financial markets is more dynamic with changing the environmentand changing in to SEBI rules, regulation and structures and depend to the capitalmarket & securities market to SEBI. Hence with a view to knowing more aboutinvestment practice and to get practical knowledge of what we learn in the collegeand class, I have decided to do my project work at of „India Advantage Securities.Pvt. Ltd..Majura Gate, Surat.‟Here, In My Project I am analyzing 25IPO company From Different Sector like IT,BANKING, CHEMICAL, AUTOMOBILE, CEMENT, etc. with collection of IPOprice of last three years, And also analyze the model like CAAR (CumulativeAbnormal Adjusted Return), MAAR (Market Adjusted Abnormal Return), And Byanalyzing all this data I am find that IPOS Different sector is continuously growingin last Three years. 5
  6. 6. CHAPTER PAGE NO: TOPICT NO: 1 INTRODUCTION OF INDIA ADVANTAGE SECURITIES LTD. 7-9 VISION 10 PHILOSOPHY 10 COMPANY PRODUCT 10 - 12 2 RESEARCH METHODOLOGY 13 - 15 3 INTRODUCTION ABOUT CAPITAL MARKET 16 MEANING OF CAPITAL MARKET 17 STRUCTURE AND SIZE OF CAPITAL MARKET 18 PRIMARY MARKET & SECONDARY MARKET 19 4 INTRODUCTION OF IPO 20 - 23 WHAT IS AN IPO? 24 - 25 WHY MAY A COMPANY NEED AN IPO? 26 WHAT ARE THE TWO SIDE OF IPO COIN? 27 WHO CAN" TOSS THE IPO COIN" 28 PREPARING FOR IPO REGULATORY 29 PROCESS OF IPO 30 - 31 IDEAL PROCESS OF IPO 32 THE PROCEDURE FOR THE ISSUE OF AN IPO 33 - 34 DOCUMENT OF IPO 35 IPO MARKET IN INDIA 36 5 GENERAL ANALYSIS 37 LIST OF IPO 38 CLOSING PRICE OF IPO 39 CALCULATION METHOD FOR SHORT TERT & LONG TERM PERFORMANCE OF IPO 40 - 41 SHORT TERM PERFORMANCE OF IPO 42 - 43 LONG TERM PERFORMANCE OF IPO 44 - 57 6 CONCLUSION 58 - 59 7 BIBLIOGRAPHY 60 - 61 6
  7. 7. CHAPTER 1:INTRODUCTION OF COMPANY 7
  8. 8.  INTRODUCTION OF COMPANY: India Advantage Securities Pvt. Ltd. is a member of The Bombay StockExchange Ltd. (BSE) as well as the National Stock Exchange (NSE). Theinstitutional desk was established in 2009 with a vision to provide quality researchand execution services to institutional as well as corporate clients. IASL hassignificant net worth as well as expertise in managing large transactions in the cashand derivatives market. Our expertise lies in Futures and Options where we are themarket leaders in Delta / Gamma Neutral arbitrage in the Indian markets IASLservices Financial Institutions, Mutual funds and Foreign Institutional Investors.The quality, commitment and experience of our Institutional Sales Team is anessential element of our ability to meet and surpass our clients expectations. Weare confident and committed to devise and conceptualize various investment andtrading themes with respect to dynamic market conditions in Indian equities andderivatives domain. Our team remains committed to provide highest standards ofResearch, execution and client satisfaction. An arm of the flagship company India Advantage Securities Limited, weat the India Advantage group are dedicated to deliver expert financial services thatbest suit your futuristic needs. Our fundamental areas of functioning includeShares, Stocks (Capital Market and Futures & Options), and Commodities,E-Broking, Internet Institutional Equities, Research, Currency Derivatives, NRIDesk, PCG, IPO‟s and Depository services. We are a one-stop specialized solutionto all your financial requirements. India Advantage was established to perform these core functions threedecades ago. Prior to this, it operated as M/s Mehta Investments, founded by Mr.Pravin Mehta, Chartered Accountant in 1990. It is under the able guidance ofMr. Mehta, the Chairman and Managing Director, that India Advantage is todayreaching new heights in financial consultancy. India Advantage was foundedwith a vision of creating a “ONE-STOP-INVESTMENT SOLUTION PROVIDERTO ALL INVESTORS”. Strong team of qualified and experienced professionals is 8
  9. 9. the key success of our organization. With latest IT infrastructure set-up we providehassle free connectivity and fastest trading platform. It is backed up by focusedprofessionals. We have catered number of clients by giving end to end wealthsolutions. We are based on the principles of highest standards of excellence,ethics, efficiency and professionalism. The integration of India Advantage Securities Limited and India AdvantageCommodities Private Limited has transformed it into a financial power house thatprovides expert services required for stock broking and investments in Capital /Securities and Commodities market. We are focused on our aim to fulfill therequirements of individual investors and financial institutions across the country. We channel our energies towards bringing out our best skills to ensure amaximum financial benefit for you. Along with this, we uphold and augment thevalues of our shareholders. We are a visionary team with a deep understanding ofthe financial diversity. We are a tram with intense passion for our goal of settingexcellent standards of Corporate Governance and meeting the financial needs anddemands of society. 9
  10. 10.  Vision: Protect Investor Interest and Enhance Investment Value.  Philosophy: The India Advantage philosophy has a social base with associates andclient centric, with a clear focus on providing long-term value addition to all, whilemaintaining the highest standards of excellence, ethics and professionalism.  Company Products: As a group, our first priority is our clients. We believe in being focused ontheir needs and providing excellent long term value addition, while taking utmostcare to uphold our values of excellence, ethics and professionalism. Our activities are divided across distinct client groups: Individuals,Corporate and Institutions. Keeping in mind this client-centric approach, weprovide our clients brokering assistance in equities and commodities, distributionof mutual funds and IPOs. Equities: India Advantage Securities Ltd. encourages its clients to deal on both theprominent exchanges of the country – the Bombay Stock Exchange and theNational Stock Exchange of India Ltd. Capital Market segments though smaller involumes than Derivatives, are very vital for the success of the medium and smallinvestors. We advance client dealings on BSE and NSE for equities segment.Dedicated sales and trading teams in our trading desks support these client Derivatives : India Advantage Securities Ltd., also provides services for its clientswanting to deal in the Derivatives segment of the NSE. All client dealings on theexchange in all types of Futures and Options (Call and Put), conducted through usare duly supported by a dedicated sales & trading teams in our trading desks 10
  11. 11. Commodities: Commodities have lately forged new possibilities for participation ofinvestors and traders. Commodities hold a wide range of unexplored opportunity toevade business risks, while providing attractive investment and trading prospectsfor investors as well as traders. Commodities hold great ability to turn into aseparate asset class for market-savvy investors, arbitrageurs and speculators. Thebest part is that they are easily comprehendible for fundamentals of demand andsupply. At India Advantage Commodities Pvt. Ltd., we back our clients andprovide an efficient platform to trade on both the commodities exchanges, whichare the Multi Commodity exchange of India Ltd. (MCX) and the NationalCommodity & Derivatives Exchange Ltd. (NCDEX) E-Broking (Internet trading): It is user-friendly services to customers so that they can manage their stockportfolio. Including, online capabilities linked to an information database to helpcustomers invest, confidently. E-broking services are specially developed for thetraders and investors who prefer operating from their home or office, through theinternet. NRI Service:WHY NRI ACCOUNT WITH INDIA ADVANTAGE SECURITIESLIMITED?a. Single location for Investments and Dematb. Linked Bank Account with respective banksc. Research Reports for every asset classd. Trading platforms for every need: Trade online on NSE and BSE.e. Real-time portfolio tracking with price alertsf. Secure transactionsg. Order & Trade confirmations by e-mail and online portfolio. 11
  12. 12. CHAPTER 2:RESEARCHMETHODOLOGY:  Statement of problem  Scope of the study  Objective of study  Selection of Sample  Significance of study  Reference period  Source of data  Tools & techniques  Chapter schema:  Limitation of study 12
  13. 13.  Statement of problem: „To measure short term means same day & long termperformance of IPOs.(1 month, 3month, 6month, 12month, 24month, 36month,)‟  Scope of the study: Analysis of 25 IPOs from different years. Measurement of performance with reference to average return with the same day (1month, 3month, 6month, 12month, 24month, 36month,)‟ Project emphasis more in fluctuation of share price after public offering retain then effect of systematic factor.  Objective of study:  Main :  To compare performance of ipo in same day of 1day or in short-run & long –run.  To know profit potential of IPOs after long period of time.  Secondary:  To understand the return & risk associated of time.  To understand profit potential in IPOs & in secondary market.  Selection of sample: Project is covered 25IPO from different sectors from the year2006,2007,2008,  Significance of study: The profit opportunity for investor. 13
  14. 14.  Reference period: 6th January,2011 to 6th march, 2011 Source of data: Primary data Secondary data: magazine, newspaper. book Tools & techniques:  MAAR (Market Abnormal Adjusted Return)  CAAR(Cumulative Abnormal Adjusted Return) Chapter schema: 1. Introduction of India Advantage Securities Ltd. 2. Research Methodology 3. Introduction About Capital Market 4. Introduction Of IPOs 5. General Analysis 6. Conclusion 7. Bibliography Data collection: 25IPOs-offer price of all 25 IPO. & price (in same day, after 1month, 3month, 6month, 1year, 2year, 3year,) from listing date. 14
  15. 15.  Limitation of study:  Study is only of 25 IPOs from year 2007 of different sectors. It may not give complete idea about the performance of IPOs in short & long run.  Study analysis the perform only on compare to the retain of index effect of other factor are market.  Tools which are used may have certain militate. 15
  16. 16. CHAPTER 3: INTRODUCTION ABOUTCAPITAL MARKET MEANING OF CAPITAL MARKET STRUCTURE AND SIZE OF CAPITAL MARKET PRIMARY MARKET & SECONDARY MARKET 16
  17. 17.  CAPITAL MARKET  MEANING OF CAPITAL MARKET: “Capital market refers to the market for rising of financialresources by the business enterprises, firms, government, semi- governmentbodies, public sector units and other organization.” Capital market is an organized market for long term funds required formeeting long term needs of business enterprises. It converts savings into profitableinvestments for industrial development. Capital market is a wide term used to comprise all operation in the newissues market and stock market. New issues made by the companies constitute thePrimary marker. While trading in the existing securities relates to the secondarymarket. While we can only buy in the Primary market, we can buy and sellsecurities in the secondary market. Market comprises some who demand and otherwho supply these resources.  THE CAPITAL/SHARE MARKET: The origination of the Indian securities market may be traced back to 1875,when 22 enterprising brokers under a Banyan tree established the Bombay StockExchange (BSE). Over the last 125 years, the Indian securities market has evolvedcontinuously to become one of the most dynamic, modern and efficient securitiesmarkets in Asia. Today, Indian markets conform to international standards both interms of structure and in terms of operating efficiency. 17
  18. 18.  Structure and Size of the Markets: Corporation of the exchanges assumes the counter-party risk of eachmember and guarantees settlement through a fine-tuned risk management systemand an innovative method of online position monitoring. It also ensures thefinancial settlement of trades on the appointed day and time irrespective of defaultby members to deliver the required funds and/or securities with the help of asettlement guarantee fund. Today India has two national exchanges, the BombayStock Exchange (BSE) and the National Stock Exchange (NSE). Each has fullyelectronic trading platforms with around 9400 participating broking outfits.Foreign brokers account for 29 of these. There are some 9600 companies listed onthe respective exchanges with a combined market capitalization near $125.5bn.Any market that has experienced this sort of growth has an equally substantialdemand for highly efficient settlement procedures. In India 99.9% of the trades,according to the National Securities Depository, are settled in dematerialized formin a T+2 rolling settlement environments. In addition, trades are guaranteed by theNational Clearing Corporation of India Ltd (NSCCL) and Bank of IndiaShareholding Ltd (BOISL), Clearing Corporation houses of NSE and BSErespectively. The main functions of the Clearing Corporation are to work out (a)what counter parties owe and (b) what counter parties are due to receive on thesettlement date. Furthermore, each exchange has a Settlement Guarantee Fund tomeet with any unpredictable situation and a negligible trade failure of 0.003%. TheClearing 18
  19. 19. 1.) Primary Market: Primary market is the market for those securities which are issued firsttime in the market for the public. The New Issue Market deals with new securitiesi.e. securities which were not previously availably and are offered to the investingpublic for the first time. Primary market is a market for New issues or Newfinancial claims. Hence, it is called New Issue Market. The market, therefore,derives its name from the fact that it makes available a New Block of Securities forpublic subscription. In the Primary market, borrowers exchange new financialsecurities for long term funds. It facilitates capital formulation.Companies raise its capital in the primary market though:(i) Public Issue(ii) Right Issue(iii) Primary placement/subscription The most popular method of raising capital is sale of securities to thepublic by new companies is called Public Issue. Right Issue means, when existingcompany first offered. The security to existing shareholders on a Pre –emptivebases, while company want to raise additional capital is called capital is calledRight Issue. Private placement imagine private sale of securities to small groupinvestors.2.) Secondary Market: Secondary market is the market for those securities which havealready been available in the market and listed on a stock exchange. The mainbenefit of Secondary market is securities sold and purchased continuously amonginvestors without involvement of company. This market consists of all stockexchange recognized by the Government of India. The stock exchange in India areregulated under the securities contracts (Regulation) Act, 1956. 19
  20. 20. CHAPTER 4: INTRODUCTION OF IPO WHAT IS AN IPO? WHY MAY A COMPANY NEED AN IPO? WHAT ARE THE TWO SIDE OF IPO COIN? WHO CAN" TOSS THE IPO COIN" PREPARING FOR IPO REGULATORY. PROCESS OF IPO. IDEAL PROCESS OF IPO. THE PROCEDURE FOR THE ISSUE OF AN IPO. DOCUMENT OF IPO. IPO MARKET IN INDIA 20
  21. 21.  INTRODUCTION OF IPO: The transition from being a private company to a public one is one of themost important events in the life of a firm. It is also one of particular interest toinstitutional investors, and the transition is facilitated through the INITIALPUBLIC OFFERING (IPO) process. The IPO provides a fresh source of capitalShareholders such as venture capitalists a liquid market for their shares. From aninstitutional investors perspective, the IPO provides an opportunity to share in therewards of the growth of the firm. When a firm issues equity to the public for the first time, it makes an initialpublic offering consisting of two kinds of issues – the primary issue and thefollow-on issue. In a primary, the firm raises capital for itself by selling stock tothe public, whereas in the follow on issue, existing large shareholders sell to thepublic a substantial number of shares they currently own. It is a well documented fact that IPOs tend to be generally under-priced,though some issues tend to be overpriced. From the viewpoint of financialresearch, IPO under-pricing in the sense of abnormal short-term returns on IPOshas been found in nearly every country in the world. This suggests that IPO under-pricing may be the outcome of basic problems of information and uncertainty inthe IPO process, and is unlikely to be a figment of institutional peculiarities of anyone market. There have also been various studies made to suggest the reasons for suchunderpricing. From the investors‟ point of view, this under-pricing appear toprovide the sure and quick profit that most dream about. Though first day returncould vary, few of the issues tend to provide a very high return over the first day.One of the examples is VA Linux which had a first day return of 700%. It is alsoseen that for some of the issues, the first day return could also be negative. It thenbecomes inevitable for most investors to measure the performance of IPOs by theshort term (usually within one week of issue), as the general scheme is to buythe shares at a low initial offering price and sell it the next day when the priceincreases. Pricing of the IPOs are done by the issuers with guidance from underwritersfrom investment banks. There are various ways to price the stocks but what iscommonly used now is a process called book building. It is basically a capitalissuance process used in an Initial Public Offer which aids price and demand 21
  22. 22. discovery. It is also a process used for marketing a public offer of equity shares ofa company. During the period for which the book for the IPO is open, bids arecollected from investors at various prices, which are above or equal to the floorprice. The offer/issue price is then determined by the issuing company after the bidclosing date based on the various bids that have been collected. For a more detaileddiscussion of book building, one can visit any of the many stock exchanges. Anexample of the book building process can be seen from the National StockExchange. This Initial Public Offering can also be made through the fixed pricemethod or a combination of both book building and the fixed price method. There have been various studies conducted on the price changes of theshares after prolonged periods (six months to five years). These studies show thatwhile the short-run performance of IPOs is often quite impressive, the long-runperformance over the subsequent three to five years is not as impressive. Excludingthe initial-day return, IPOs tend to underperform various benchmarks. However,these studies focus mainly on developed economies and tend to neglect thedeveloping counterparts. A study by Madhusoodanan and Thiripalraju studies theperformance of Indian IPOs prior to 1996. It is in the hope that the long term performance of IPOs in developingeconomies can also be a useful indicator to the potential investor that this study isto be undertaken. The purpose of this paper is to examine the long-runperformance of IPOs in Indian stock market which were issued during 2000-2001.The IPO literature has shown that the IPO issues and performance is based on acycle. In some years there are a large number of IPOs while in some years, thereare only a few IPOs. When it is a vintage year with a large number of IPOs, mostIPOs tend to do well on the first day but tend to do poorly over a long termwhereas in years when there are only a few IPOs, the results tend to be mixed. Thelong run performance is likely to be affected while we include IPOs from differenttime periods because the market movements in different market conditions arelikely to be different. In order to see that results are not confounded by the timeperiod when IPO was issued, it was decided to include IPOs that were issuedwithin a one-year period. This has resulted in a sample of 116 companies whichhad IPOs in this period from various industries. This study is important mainlybecause the Indian stock market has been performing very well from the year 2001and our research wants to show whether this performance is due to the establishedfirms or the performance also gets to the newly issued shares through IPOs. The study uses various methods to ascertain the significance of the over orunderperformance of IPOs. Among the many reasons for the performance which 22
  23. 23. we see, one of them could be the sensitivity of the results to the choice ofbenchmarks. Dimson and Marsh, Ritter, Gregory et al, Fama and French and Famahave successively demonstrated the sensitivity of the long-run performance of theIPOs the benchmark used in the study. For this reason, the effect of variousbenchmarks on the return measurements will be studied so as to elucidate thepossibility that the magnitude of the performance is benchmark dependent. 23
  24. 24.  What is an IPO?An IPO or an Initial Public Offer is a companys first sale of equity shares togeneral public. Shares offered in an IPO are often, but not always, those of newlyset up companies seeking outside equity capital and a public market for theirshares.“An initial public offer is an equity product that allows you to buy cheaptomorrow’s possible winners” -George Mathew An Initial Public Offering (IPO) can be a good investment avenue for equityinvestors. While the IPO market is dry these days, a fresh crop is expected soon.Let us take five minutes to understand IPOs and to decide whether to invest inthem or not. Suppose your friend owns a business, his company is profitable and hewants to grow the company faster. For this he needs money. Instead of debt, hewants to offer a part of his company for sale in the stock market. He will make,what is called, a „public offer‟ of shares (after a number of procedures andregulatory processes). If the issue is successful, his company will „list‟ or begin totrade in a stock exchange. So, an IPO is a fresh offer, where a company that is notyet trading, wants to sell shares directly to the investors. The shares can be offered„at par‟, that is, at face value of Rs 2 Rs 5 or Rs 10, or at a premium. After this,your friend is no longer the only owner but will have „diluted‟ his share. The„owners‟ of the company may now be thousands of people he may not even know.Yet, if he holds the majority shares, he will still take all the decisions about thecompany. All the share holders are now entitled to vote, may get dividends and 24
  25. 25. bonuses. They also have the option to exit from the shares by selling their stock inthe secondary market, making a capital appreciation or loss as the price changesfrom the issue price. 25
  26. 26.  Why may a Company need an IPO? To meet short-term requirements, the company may approach banks,lenders or may even accept fixed deposits from the public/shareholders. Tomeet its long-term requirements, funds can be raised either through loan fromlenders, Banks, Institutions etc., (which carry financial burden) or through theissue of capital. Capital can be raised through private placement of shares,public issue, rights issue, etc. Public Issue means raising funds from the public.Promoters of the company may have plans for the company that may requireinfusion of money. The main purpose of the public issue, amongst others, is toraise money through the public and to get its shares listed at any of therecognized stock exchanges in India. The following may be some other reasonsfor a company to go public:  Raising funds to finance capital expenditure programs like expansion, diversification, modernization, etc;  Financing of increased working capital requirements;  Financing acquisitions like a manufacturing unit, brand acquisitions, tender offers for shares of another firm, etc;  Debt financing ;  Exit route for exiting investors. An IPO has two sides to it, consisting of advantages and disadvantages.Moreover, it needs to be balanced, and this is done by the Regulatory Bodiessuch as The Securities and Exchange Board of India (SEBI), so that it does notfall on one side. Due to this property of an IPO, it has been referred to as a“Coin” in this report. 26
  27. 27.  What are the two sides of IPO coin?Advantages Disadvantages Money non-refundable except in the case of Time consuming process winding up or buy back of shares Expensive No financial burden i.e. no fixed rate of Several Legal formalities. interest payable. However, in order to Involvement of many intermediaries service the equity, dividend may be paid. Transparency Requirements and public Enhances shareholders value if the disclosure of information may lead to company performs well lack of privacy Greater Transferability Continuous Compliance of provisions Trading & Listing of securities at stock of listing agreement and other legal exchanges requirements Better Liquidity of securities Constant scrutiny of performance by Helps building reputation of promoters, investors company & its products / services, provided May lead to takeover of the company the company performs well Securities of the company may be made subjective to speculative attacks.How is the “coin” made to balance (Controls)?Applicable Laws A Company is required to comply with the following laws in connection with a public issue:  Provisions of The Companies Act, 1956  Securities Contracts (Regulations) Act, 1956  SEBI Rules & Regulations  Compliance to the Listing Agreement with the concerned stock exchanges after the listing of securities.  RBI regulations in case of foreign. 27
  28. 28.  Who can “Toss the IPO Coin”? Eligibility Criteria for Public Issuance of Securities  Net Tangible Assets of at least Rs. 3 crores in each of the preceding 3 full years (of 12 months each), of which not more than 50% is held in monetary assets. If more than 50% is held in monetary assets, the company should have firm commitments to deploy such excess in its business/project  Track record of distributable profits in for 3 out of preceding 5 years  Net Worth of at least Rs. 1 crores in each of the preceding 3 full years (of 12 months each)  Issue size + previous issue in current FY is lesser than 5 times pre-issue net worth Yes No Fixed Price or Book  Only Book building, with compulsory allocation ofbuilding (no minimum at least 50% to QIBsallocation to QIBs) Or  At least 15% participation in project by FIs/banks, of which at least 10% should come from the appraiser(s) and additionally allocation of at least 10% to QIBs. And  Minimum post-issue face value capital of the Company shall be Rs. 10 crores Or  Compulsory market making for 2 years 28
  29. 29.  Preparing for IPO – Regulatory:Company should adopt best corporate governance practices to assist Investorsappreciate greater transparency and disclosure. These have to be complied withbefore listing. Board of Directors Committees Change in Board  Audit committee of at least composition to reflect public 3, all being non-executive shareholders‟ interest directors, with majority Increase number of non- being independent & at least executive directors to 1 director having financial & constitute at least 50% (If accounting knowledge the chairman of the board is  Remuneration committee to an executive director then determine the Company‟s the board should have at policy on specific least 50% independent remuneration packages for directors or else at least executive directors 1/3rd)  Investor Grievance committee Company would have to ramp up Secretarial and Compliance teams 29
  30. 30.  Process of IPO: For private companies in the United States , the first issue of securitiesto the speculative and rarely do they result in large gains for investors.However, since capital is often needed to grow a private company and values ofcompanies are public is referred to as an Initial Public Offering (IPO). IPOs areextremely best determined in the marketplace, IPOs continue to be used as away for growing private companies. IPOs are often one of the hottest topics in financial management.Behind the glamour and the glitz of Initial Public Offerings (IPOs) there is atremendous amount of hard work and personal sacrifice. IPOs require a coregroup of highly skilled professionals who must literally work around-the-clockfor one year. Therefore, one of the first steps to a successful IPO is theformation of a seasoned, experienced team of professionals who will make theIPO happen. You must recruit the best possible people you can find - there is notime to supervise inexperienced MBAs fresh out-of-school. Once an IPO team (Investment Banker, Legal Council, SEC Expert, OutsideAuditor, etc.) has been formed, you can establish a plan for the IPO Process. Abasic timeline for an IPO will usually consist of:Month 12: Recruit new management to run the public company - CEO, CFO,etc. Start compiling the financial information.Month 11: Start due diligence work - worthless assets are written off,inconsistencies with GAAP are resolved, etc.Month 10: Start drafting the prospectus. Coordinate the collection of data tominimize duplicative efforts.Month 9: Establish a board of directors for the newly formed public company.Month 8: Draft three-year historical financial statements.Month 7: Circulate draft prospectus for comments.Month 6: Establish transition contracts for services and products that will nowbe provided to the newly formed public company. Some new contracts will beneeded, such as independent audits of financial statements. 30
  31. 31. Month 5: Finalize historical financial statements. Start preparing interim (stub)financial statements for current period.Month 4: Finalize pro forma and interim financial statements. Make revisions todraft prospectus.Month 3: Convene new board of directors. Audit of interim financials should becomplete.Month 2: Outside auditors opinion is issued. Membership with stock exchange iscomplete.Month 1: File prospectus with SEC (Securities Exchange Commission). Issuepress release and sell the company to investors. Before the IPO Process is complete, it is essential to implement all of thenecessary controls, procedures, and systems that will now be required within"public life." Staff changes must be made, new financial systems tested,functions like human resources must be managed, etc. The entire IPO process ismuch more involved than most people realize. A great IPO team and properplanning is the key to a smooth IPO process. 31
  32. 32.  Ideal IPO Process:On Monday morning, the newspaper should carry an advertisement which is theprospectus of the IPO, which only talks about the firm and is silent onvaluation.The IPO should take place on Tuesday evening, from 4 PM to 5 PM. Theauction should be a simple uniform-price auction with full transparency. Apicture of the demand schedule, and the cut-off price, should update on thescreen in real-time.Investors should be able to go to any NSE terminal and place orders into theauction. This harnesses 10,000 odd computer screens in 300 cities all over Indiain the auction process. From the issuers perspective, NSCC should perform thecredit enhancement exactly as it does on the equity market. At a legal level, allorders on the screen should be placed by NSCC, thus shielding the issuer fromthe credit risk associated with anonymous order placement.There should be no fragmentation of the shares on offer. All shares to be soldshould go through a single auction. If a retail investor wanted to "access theIPO at prices close to the offer price" she would just place non--competitivebids at the IPO, where she bids to buy (say) 100 shares at the IPO price,whatever it proves to be.Allocation of shares in the depository should take place on Tuesday itself.There should be no physical shares. Trading on NSE should start on Wednesday(the next day). This gives us a one-- day lag between the IPO and the start oftrading.This proposed IPO process sounds startlingly effective. To put it in perspective,it is part of the same disintermediation process that we have seen in other areasof areas of the financial markets. With anonymous, electronic trading on theequity market, the broker/dealer has been fundamentally disinter mediated outof secondary market trading, which is now dominated by the actions of buyersand sellers (and not intermediaries). In that same fashion, the IPO processproposed here uses technology to link up the issuer and the investor with atransparent pricing mechanism, and eliminates the traditional overheads ofintermediation. 32
  33. 33.  The Procedure for the Issue of an IPO: Many of these steps can be undertaken prior to formal launch of theoffering and filing of the offer document with SEBI and other regulators Preparing for IPO.  Review business plan.  Capital structuring.  Initiate research.  Corporate governance.  Financial statements. Due diligence.  Business and legal due diligence.  Re-stated audited financials.  Exemptions and approvals.  =Offer document.  Business overview.  Management discussion.  Statutory disclosures. Pre-issue marketing.  Meeting with institutional investors.  Research briefings.  Corporate publicity. 33
  34. 34.  Launch IPO  File with SEBI.  Road shows. 34
  35. 35.  Document of IPO: A company coming out with a public issue has to come out with an offer document/prospect. An offer document is the document that contains all information you need about the company. It will tell you why the company is coming is out with a public issue. It‟s financial and how the issue will be priced. The Draft Offer Document is the offer document in the draft stage. Any company making a Public issue is required to file the draft offer document with the Securities and Exchange Board of India(SEBI).The market regulator. If SEBI demands any changes. They have to be made. Once the changes are make. It is field with the registrar of companies are the Stock Exchange. It must be filed with SEBI at least 21 days before the company files it with the ROC/ Stock Exchange during the period. You can check it out on the SEBI website. Red Herring prospectus is just like the above except that it will have all the information as a draft offer document. It wills, howrver, not have the details of the price or the number of shares being offered or the amount of issue. That is because the Red Herring prospectus is used in bookbuiling issues only, Where the details of the find price are know only after bidding is concluded, 35
  36. 36.  IPO MARKET IN INDIA: The IPO Market in India has been developing since the liberalization of theIndian economy. It has become one of the foremost methods of raising funds forvarious developmental projects of different companies. The IPO Market in India is on the boom as more and more companies areissuing equity shares in the capital market. With the introduction of the openmarket economy, in the 1990s, the IPO Market went through its share of policychanges, reforms and restructurings. One of the most important developments wasthe disassembling of the Controller of Capital Issues (CCI) and the introduction ofthe free pricing mechanism. This step helped in developing the IPO Market inIndia, as the companies were permitted to price the issues. The Free pricingmechanism permitted the companies to raise funds from the primary market atcompetitive price. The Central Government felt the need for a governed environmentpertaining to the Capital market, as few corporate houses were using the abolitionof the Controller of Capital Issues (CCI) in a negative manner. The SecuritiesExchange Board of India (SEBI) was established in the year 1992 to regulate thecapital market. SEBI was given the authority of monitoring and regulating theactivities of the bankers to an issue, portfolio managers, stockbrokers, and otherintermediaries related to the stock markets. The effects of the changes are evidentfrom the trend of the resources of the primary capital market which Includes rightsissues, public issues, private placements and overseas issues. The IPO Market inIndia experienced a boom in its activities in the year 1994.In the year 1995 thegrowth of the Indian IPO market was 32 %.The growth was halted with the SouthEast Asian crisis. The markets picked up speed again with the introduction of thesoftware stocks. 36
  37. 37. CHAPTER 5: GENERAL ANALYSISLIST OF IPO.CLOSING PRICE OF IPO. CALCULATION METHOD FOR SHORT TERT & LONG TERMPERFORMANCE OF IPO.SHORT TERM PERFORMANCE OF IPO.LONG TERM PERFORMANCE OF IPO. 37
  38. 38.  For the analysis I have selected following IPOs. I have collect IPOs from year 2006 to 2008. So it is possible to measure long-term performance. Listing Name of IPO Date Offer Price(RS.) 1. Porwal auto component Ltd 17-Dec-06 68 2. Aries agro ltd 14-Dec-06 120 3. Transformer and rectifier ltd 7-Dec-06 425 4. Burnpur cement ltd 28-Nov-06 12 5. Jyoti laboratory ltd 12-Nov-06 620 6. Renaissnce jwellary ltd 19-Nov-06 125 7. Edelweiss capital ltd 15-Nov-07 725 8. Mundra port & SEZ ltd 1-Nov-07 400 9. Barak valley cement ltd 29-Oct-07 37 10. Allied computer int. ltd 19-Oct-07 12 11. Chemical biotech ltd 9-Sep-07 16 12. Vishal info. Technology ltd 21-Jul-07 140 13. KSK energy venture ltd 23-Jun-07 240 14. Sejal architectural glass ltd 9-Jun-07 105 15. Avon washing system ltd 9-Jun-07 10 16. Bafna Pharmaceuticals ltd 27-May-07 40 17. Aishwariya telecom ltd 15-Apr-08 32 18. Sita Shree food product ltd 11-Apr-08 27 19. Niraj cement structureal ltd 22-Jun-08 175 20. Godrej properties ltd 9-Dec-08 100 21. Think soft global service ltd 22-Sep-08 120 22. Euro multivision ltd 24-Sep-08 70 23. C mahendra export ltd 31-Dec-08 95 24. Punjab &Sind bank 13-Dec-08 113 25. Power Grid corporation of india ltd 9-Nov-08 85 38
  39. 39.  CLOSING PRICE OF IPO: 12 24 36 SAME 1MONTH 3MONTH 6MONTH MONTH MONTH MONTHNO Offer Price DAY (RS.) (RS.) (RS.) (RS.) (RS.) (RS.) 1 68 79.6 110.397 75.147 76.21 65.174 45.167 49.176 2 120 172.197 178.264 140.397 150 143.287 98.271 109.175 3 425 534.17 476.397 379.379 32 370.9 482.754 439.647 4 12 19.175 10.37 7.254 7.36 12.271 16.387 13.27 5 620 734.15 679.87 611.52 725.2 598.217 570.33 625.149 6 125 115.274 112.397 145.697 159.2 120.32 142.254 111.351 7 725 824.1 752.165 612.14 633.2 575.153 545.254 698.14 8 400 297.145 364.254 387.42 411.54 370.198 375.159 403.31 9 37 47.19 42.17 22.254 26.3 17.975 59.147 60.3710 12 10.97 11.36 11.254 15.21 19.254 15.364 13.21511 16 27.197 33.14 19.675 24.12 15.364 17.98 16.0112 140 179.87 211.31 145.64 157.25 180.364 137.264 122.74613 240 197.157 221.296 321.264 357.21 225.172 238.12 207.98514 105 92.154 86.15 67.198 51.21 104.031 107.1 119.3115 10 8.257 7.982 14.987 12.58 19.854 27.379 11.3116 40 35.198 33.31 29.987 22.14 37.154 39.17 39.1917 32 57.191 49.11 35.14 39.25 31.294 29.146 34.37118 27 21.254 25.364 31.476 33.21 33.21 27.29 28.1219 175 227.9 221.25 152.14 157.69 142.35 163.98 159.8920 100 135.96 96.36 141.71 157.21 163.65 112.94 92.2121 120 98.12 99.365 142.95 125.21 148.57 125.917 109.0722 70 63.94 69.5 42.92 44.2 47.16 44.51 72.6923 95 115.95 122.35 112.35 159.6 142.36 113.67 78.13724 113 95.87 76.98 74.25 74.21 62.24 92.81 101.3525 85 99.31 87.25 109.7 111.25 103.54 72.19 87.21 39
  40. 40.  CALCULATION METHOD FOR SHORT- TERM PRAFORMANCE OF IPOS: The methodology used by Aggarwal, Leal and Hernandez (1993) to measurethe short-run performance for each IPO and for groups of IPOs. The total return forstock “i” at the end of the first trading day is calculated as: Ri1= (Pi1/Pi0) -1 (1) Where Pil is the closing price of the stock i at the first trading day, and Pi0 isits offering price and Ril is the total first-day return on the stock. The return on themarket index during the same time period is: R m1 =(P m1/ P m0) - 1 (2) where P m1is the closing market index value at the first trading day and P m0 isthe closing market index value on the offering day of the appropriate stock, whileR m1 is the first day‟s comparable market return.Using these two returns, the market-adjusted abnormal return for each IPO on thefirst day of trading is computed as: MAARi1= 100 ( 1+ Ri1/ 1+ R m1-1 ) (3) MAAR is the sample mean abnormal return for the first trading day and maybe viewed as a Performance index which reflects the return, in excess of the marketreturn, on an investment divided equally among N new issues in a sample: 40
  41. 41.  CALCULATION METHOD FOR LONG- TERM PRAFORMANCE OF IPOS: The Long Term Performance Is Based on CAAR Model it meansCumulative Average Abnormal Return: Average CAART= where the abnormal return in month t after the IPO for firm I is given by εitand N is the number of firms in the sample. 41
  42. 42.  SHORT- TERM PRAFORMANCE OF IPOS (SAMEDAY): CL.PRICE Offer OF SAME Ril= OPEN CLOSENO Price(pio) DAY(pil) (pil/pio-1) NIFFTY(Pmo) NIFFTY(Pm1) Rm1 MAAR (%)1 80 79.58 -0.005 6037.95 5777 -0.0433 94.172 180 172.197 -0.043 5730.25 5731.15 0.0002 94.723 422 534.17 0.266 5699.55 5617.55 -0.0144 124.164 25 19.175 -0.233 5564.65 5519.35 -0.0082 74.885 755 734.15 -0.028 5908.05 5907.65 -0.0001 96.196 125 115.274 -0.078 5942.7 5912.1 -0.0052 90.687 725 824.1 0.137 5903.8 5866.45 -0.0064 112.068 400 297.145 -0.257 5708.9 5905.9 0.0346 76.769 50 47.19 -0.056 5360.35 5215.3 -0.0271 90.6910 19 10.97 -0.423 5214.23 522.15 -0.8999 -33.2911 25 27.197 0.088 5140.6 5317.25 0.0344 111.2412 160 179.87 0.124 5120.55 4857 -0.0515 106.2513 350 197.157 -0.437 4877.52 4838.25 -0.0081 54.4914 145 92.154 -0.364 4836.55 4929.45 0.0193 64.5315 18 8.257 -0.541 5278.4 5280.8 0.0005 44.9516 46 35.198 -0.235 5267.15 5154.45 -0.0214 73.3617 32 57.191 0.787 5266.35 5285.1 0.0036 178.0618 27 21.254 -0.213 5112.25 5200.7 0.0174 79.4419 190 227.9 0.199 5279.24 5271.21 -0.0016 118.7420 120 135.96 0.133 4223.5 4231.4 0.0019 112.4921 125 98.12 -0.215 5007.65 5083.95 0.0153 79.0322 95 63.94 -0.327 4993 4945.2 -0.0096 65.3423 137 115.95 -0.154 85200.9 5232.2 -0.9386 -10.2624 145 95.87 -0.339 5277.15 5277.9 0.0002 65.1225 135 99.31 -0.264 5278.15 5281.8 0.0007 72.67 TOTAL 2036.47 MAAR 81.46 42
  43. 43.  CHART OF MAAR :  Figure 1 Distribution of First Day Return of 25 company MAAR(%) 200 150 100 MAAR MAAR(%) 50 0 1 3 5 7 9 11 13 15 17 19 21 23 25 -50INTERPRETATION: The average first day returns for the entire sample of 25 selectedcompany. Figure 1 shows the frequency of the market-adjusted initial returns ofIPOs for the entire sample of Indian stocks. For the Indian market, the AverageMAAR is found to 81.46%.so Average MAAR has a greater return in a first day.And it is a high profit potential in a first day of initial public i.e. 81.46% return onfirst day. And the positive for the investor. So IPOs are generally performed betterin same day for giving good return. 43
  44. 44.  LONG- TERM PRAFORMANCE OF IPOS: The long term performance of IPOs for them. 1month. 3month .6month .12month .24month 36month. The analysis is below:  LONG- TERM PRAFORMANCE OF IPOS (monthly): RETURN ON 1 MONTH CL.PRICE OF SAME CL.PRICE AFTER 1MONTHNO Name of IPO DAY 1MONTH RETURN (%)1 Porwal auto component Ltd 79.58 110.397 392 Aries agro ltd 172.197 178.264 43 Transformer and rectifier ltd 534.17 476.397 -114 Burnpur cement ltd 19.175 10.37 -465 Jyoti laboratory ltd 734.15 679.87 -76 Renaissnce jwellary ltd 115.274 112.397 -27 Edelweiss capital ltd 824.1 752.165 -98 Mundra port & SEZ ltd 297.145 364.254 239 Barak valley cement ltd 47.19 42.17 -1110 Allied computer int. ltd 10.97 11.36 411 Chamical biotech ltd 27.197 33.14 2212 Vishal info. Technology ltd 179.87 211.31 1713 KSK energy venture ltd 197.157 221.296 1214 Sejal architectural glass ltd 92.154 86.15 -715 Avon washing system ltd 8.257 7.982 -316 Bafna Pharmaceuticals ltd 35.198 33.31 -517 Aishwariya telicom ltd 57.191 49.11 -1418 Sita Shree food product ltd 21.254 25.364 1919 Niraj cement structureal ltd 227.9 221.25 -320 Godrej properties ltd 135.96 96.36 -2921 Think soft global service ltd 98.12 99.365 122 Euro multivision ltd 63.94 69.5 923 C mahendra export ltd 115.95 122.35 624 Punjab &Sind bank 95.87 76.98 -20 Power Grid corporation of25 india ltd 99.31 87.25 -12 AVG. TOTAL -0.92 AVERAGE CAAR -0.92 44
  45. 45.  CHART OF 1 MONTH RETURN : Figure 2 Distribution of 1 Month Returns 25 company 1MONTH RETURN(%) 60 40 20 1MONTH 0 RETURN(%) 1 3 5 7 9 11 13 15 17 19 21 23 25 -20 -40 -60  INTERPRETATION: The Average CAAR for monthly is -0.92. So it is a negative for thecompany & the investor. Also company takes a risk for IPOs. And less profitpotential of IPOs after long period i.e. monthly for investor. . 45
  46. 46.  LONG- TERM PRAFORMANCE OF IPOS (quarterly): RETURN ON 3 MONTHN CL.PRICE OF CL.PRICE AFTER QUARTERLYO Name of IPO SAME DAY 3MONTH RETURN(%)1 Porwal auto component Ltd 79.58 75.147 -62 Aries agro ltd 172.197 140.397 -183 Transformer and rectifier ltd 534.17 379.379 -294 Burnpur cement ltd 19.175 7.254 -625 Jyoti laboratory ltd 734.15 611.52 -176 Renaissnce jwellary ltd 115.274 145.697 267 Edelweiss capital ltd 824.1 612.14 -268 Mundra port & SEZ ltd 297.145 387.42 309 Barak valley cement ltd 47.19 22.254 -5310 Allied computer int. ltd 10.97 11.254 311 Chamical biotech ltd 27.197 19.675 -2812 Vishal info. Technology ltd 179.87 145.64 -1913 KSK energy venture ltd 197.157 321.264 6314 Sejal architectural glass ltd 92.154 67.198 -2715 Avon washing system ltd 8.257 14.987 8216 Bafna Pharmaceuticals ltd 35.198 29.987 -1517 Aishwariya telicom ltd 57.191 35.14 -3918 Sita Shree food product ltd 21.254 31.476 4819 Niraj cement structureal ltd 227.9 152.14 -3320 Godrej properties ltd 135.96 141.71 421 Think soft global service ltd 98.12 142.95 4622 Euro multivision ltd 63.94 42.92 -3323 C mahendra export ltd 115.95 112.35 -324 Punjab &Sind bank 95.87 74.25 -23 Power Grid corporation of india25 ltd 99.31 109.7 10 AVG. TOTAL -4.76 AVERAGE CAAR -2.84 46
  47. 47.  CHART OF 3 MONTH RETURN : Figure 3 Distribution of 3 Month Returns of 25 company QUARTERLY RETURN(%) 100 80 60 40 20 3MONTH 0 RETURN(%) -20 1 3 5 7 9 11 13 15 17 19 21 23 25 -40 -60 -80  INTERPRETATION: The Average CAAR for Quarterly is -2.84. So it is a negative for thecompany & the investor. Also company takes a risk for IPOs. And less profitpotential of IPOs after long period i.e. quarterly return for investor. As compare tomonthly return it is a high risk for each 25 companies & investor. 47
  48. 48.  LONG- TERM PRAFORMANCE OF IPOS (haft yearly): RETURN ON 6 MONTH CL.PRICE OF SAME CL.PRICE AFTER HAFT YEARLYNO Name of IPO DAY 6MONTH RETURN(%) 1 Porwal auto component Ltd 79.58 76.21 -4 2 Aries agro ltd 172.197 150 -13 3 Transformer and rectifier ltd 534.17 32 -94 4 Burnpur cement ltd 19.175 7.36 -62 5 Jyoti laboratory ltd 734.15 725.2 -1 6 Renaissnce jwellary ltd 115.274 159.2 38 7 Edelweiss capital ltd 824.1 633.2 -23 8 Mundra port & SEZ ltd 297.145 411.54 38 9 Barak valley cement ltd 47.19 26.3 -4410 Allied computer int. ltd 10.97 15.21 3911 Chamical biotech ltd 27.197 24.12 -1112 Vishal info. Technology ltd 179.87 157.25 -1313 KSK energy venture ltd 197.157 357.21 8114 Sejal architectural glass ltd 92.154 51.21 -4415 Avon washing system ltd 8.257 12.58 5216 Bafna Pharmaceuticals ltd 35.198 22.14 -3717 Aishwariya telicom ltd 57.191 39.25 -3118 Sita Shree food product ltd 21.254 33.21 5619 Niraj cement structureal ltd 227.9 157.69 -3120 Godrej properties ltd 135.96 157.21 1621 Think soft global service ltd 98.12 125.21 2822 Euro multivision ltd 63.94 44.2 -3123 C mahendra export ltd 115.95 159.6 3824 Punjab &Sind bank 95.87 74.21 -23 Power Grid corporation of india25 ltd 99.31 111.25 12 AVG. TOTAL -2.56 AVERAGE CAAR -2.75 48
  49. 49.  CHART OF 6 MONTH RETURN : Figure 4 Distribution of 6 Month of 25 company HAFE YEAR RETURN(%) 100 50 0 6MONTH 1 3 5 7 9 11 13 15 17 19 21 23 25 RETURN(%) -50 -100 -150  INTERPRETATION: The Average CAAR for haft yearly is -2.75. So it is a negative for thecompany & the investor. Also company takes a risk for IPOs. And less profitpotential of IPOs after long period i.e. haft yearly return for investor. As compareto monthly return it is a high risky but quarterly return less risky for each 25companies & investor. 49
  50. 50.  LONG- TERM PRAFORMANCE OF IPOS (yearly): RETURN ON YEARLY CL.PRICE OF SAME CL.PRICE AFTER YEARLY RETURNNO Name of IPO DAY 1YEAR (%)1 Porwal auto component Ltd 79.58 65.174 -182 Aries agro ltd 172.197 143.287 -173 Transformer and rectifier ltd 534.17 370.9 -314 Burnpur cement ltd 19.175 12.271 -365 Jyoti laboratory ltd 734.15 598.217 -196 Renaissnce jwellary ltd 115.274 120.32 47 Edelweiss capital ltd 824.1 575.153 -308 Mundra port & SEZ ltd 297.145 370.198 259 Barak valley cement ltd 47.19 17.975 -6210 Allied computer int. ltd 10.97 19.254 7611 Chamical biotech ltd 27.197 15.364 -4412 Vishal info. Technology ltd 179.87 180.364 013 KSK energy venture ltd 197.157 225.172 1414 Sejal architectural glass ltd 92.154 104.031 1315 Avon washing system ltd 8.257 19.854 14016 Bafna Pharmaceuticals ltd 35.198 37.154 617 Aishwariya telicom ltd 57.191 31.294 -4518 Sita Shree food product ltd 21.254 33.21 5619 Niraj cement structureal ltd 227.9 142.35 -3820 Godrej properties ltd 135.96 163.65 2021 Think soft global service ltd 98.12 148.57 5122 Euro multivision ltd 63.94 47.16 -2623 C mahendra export ltd 115.95 142.36 2324 Punjab &Sind bank 95.87 62.24 -35 Power Grid corporation of india25 ltd 99.31 103.54 4 AVG. TOTAL 1.24 CAAR -1.75 50
  51. 51.  CHART OF YEARLY RETURN : Figure 5 Distribution of Yearly Returns of 25 company 200 YEARLY RETURN(%) 150 100 50 YEARLY RETURN(%) 0 1 3 5 7 9 11 13 15 17 19 21 23 25 -50 -100  INTERPRETATION: The Average CAAR is -1.75.So it is a negative for the company & theinvestor. Also company takes a risk for IPOs. And less profit potential of IPOsafter long period i.e. Yearly return for investor. As compare to monthly return it isa high risky but quarterly return & haft yearly return less risky for each 25companies & investor. 51
  52. 52.  LONG- TERM PRAFORMANCE OF IPOS (FOR 24 MONTH): RETURN ON 24 MONTH CL.PRICE OF SAME CL.PRICE AFTER 2YEARLY RETURNNO Name of IPO DAY 2YEAR (%) 1 Porwal auto component Ltd 79.58 45.167 -43 2 Aries agro ltd 172.197 98.271 -43 3 Transformer and rectifier ltd 534.17 482.754 -10 4 Burnpur cement ltd 19.175 16.387 -15 5 Jyoti laboratory ltd 734.15 570.33 -22 6 Renaissnce jwellary ltd 115.274 142.254 23 7 Edelweiss capital ltd 824.1 545.254 -34 8 Mundra port & SEZ ltd 297.145 375.159 26 9 Barak valley cement ltd 47.19 59.147 2510 Allied computer int. ltd 10.97 15.364 4011 Chamical biotech ltd 27.197 17.98 -3412 Vishal info. Technology ltd 179.87 137.264 -2413 KSK energy venture ltd 197.157 238.12 2114 Sejal architectural glass ltd 92.154 107.1 1615 Avon washing system ltd 8.257 27.379 23216 Bafna Pharmaceuticals ltd 35.198 39.17 1117 Aishwariya telicom ltd 57.191 29.146 -4918 Sita Shree food product ltd 21.254 27.29 2819 Niraj cement structureal ltd 227.9 163.98 -2820 Godrej properties ltd 135.96 112.94 -1721 Think soft global service ltd 98.12 125.917 2822 Euro multivision ltd 63.94 44.51 -3023 C mahendra export ltd 115.95 113.67 -224 Punjab &Sind bank 95.87 92.81 -3 Power Grid corporation of india25 ltd 99.31 72.19 -27 AVG. TOTAL 2.76 CAAR -0.848 52
  53. 53.  CHART OF 2 YEARLY RETURN : Figure 5 Distribution of 2 Yearly Returns of 25 company 2YEARLY RETURN(%) 250 200 150 100 2YEARLY 50 RETURN(%) 0 -50 1 3 5 7 9 11 13 15 17 19 21 23 25 -100INTERPRETATION: The Average CAAR is -0.848 .So it is a negative for the company & theinvestor. Also company takes a risk for IPOs. And less profit potential of IPOsafter long period i.e. 24 Monthly returns for investor. As compare to monthlyreturn it is a less risky but quarterly return & haft yearly return also less risky andfrom the duration of 24 month the risk has been reduced for each 25 companies &for investor. 53
  54. 54.  LONG- TERM PRAFORMANCE OF IPOS (FOR 36 MONTH): RETURN ON 36 MONTH 3YEARLY CL.PRICE OF CL.PRICE AFTER RETURNNO Name of IPO SAME DAY 3YEAR (%)1 Porwal auto component Ltd 79.58 49.176 -382 Aries agro ltd 172.197 109.175 -373 Transformer and rectifier ltd 534.17 439.647 -184 Burnpur cement ltd 19.175 13.27 -315 Jyoti laboratory ltd 734.15 625.149 -156 Renaissnce jwellary ltd 115.274 111.351 -37 Edelweiss capital ltd 824.1 698.14 -158 Mundra port & SEZ ltd 297.145 403.31 369 Barak valley cement ltd 47.19 60.37 2810 Allied computer int. ltd 10.97 13.215 2011 Chamical biotech ltd 27.197 16.01 -4112 Vishal info. Technology ltd 179.87 122.746 -3213 KSK energy venture ltd 197.157 207.985 514 Sejal architectural glass ltd 92.154 119.31 2915 Avon washing system ltd 8.257 11.31 3716 Bafna Pharmaceuticals ltd 35.198 39.19 1117 Aishwariya telicom ltd 57.191 34.371 -4018 Sita Shree food product ltd 21.254 28.12 3219 Niraj cement structureal ltd 227.9 159.89 -3020 Godrej properties ltd 135.96 92.21 -3221 Think soft global service ltd 98.12 109.07 1122 Euro multivision ltd 63.94 72.69 1423 C mahendra export ltd 115.95 78.137 -3324 Punjab &Sind bank 95.87 101.35 6 Power Grid corporation of25 india ltd 99.31 87.21 -12 AVG. TOTAL -5.92 CAAR -1.69 54
  55. 55.  CHART OF 3 YEARLY RETURN : Figure 5 Distribution of 3 Yearly Returns of 25 company 3YEARLY RETURN(%) 60 40 20 3YEARLY 0 RETURN(%) 1 3 5 7 9 11 13 15 17 19 21 23 25 -20 -40 -60  INTERPRETATION: The Average CAAR is -1.69.So it is a negative for the company & theinvestor. Also company takes a risk for IPOs. And less profit potential of IPOsafter long period i.e. 36 Monthly returns for investor. As compare to monthlyreturn it is a less risky but quarterly return & haft yearly return also less risky andfrom the duration of 36 month the risk has been reduced for each 25 companies &investor. 55
  56. 56.  CHART FOR CAAR : MONTH Average CAAR 1 -0.92 3 -2.84 6 -2.75 12 -1.75 24 -0.848 36 -1.69 AVERAGE CAAR 0 1 2 3 4 5 6 -0.5 -1 -1.5 CAAR -2 -2.5 -3  INTERPRETATION: The Average CAAR has Been Negatives for Entire 36 Month .so in longterm performance is poorly for the 25 selected companies. And negative responseby Indian invertors. And negative returns get in long term IPOs. 56
  57. 57.  COMMAN TABLE FOR LONG-TERM PERFORMANCE OF IPOS: RETURN AFTER HAFTNO Name of IPO 1MONTH QUARTERLY YEARLY YEARLY 2YEARLY 3YEARL (%) (%) (%) (%) (%) (%) 1 Porwal auto component Ltd 39 -6 -4 -18 -43 -38 2 Aries agro ltd 4 -18 -13 -17 -43 -37 3 Transformer and rectifier ltd -11 -29 -94 -31 -10 -18 4 Burnpur cement ltd -46 -62 -62 -36 -15 -31 5 Jyoti laboratory ltd -7 -17 -1 -19 -22 -15 6 Renaissnce jwellary ltd -2 26 38 4 23 -3 7 Edelweiss capital ltd -9 -26 -23 -30 -34 -15 8 Mundra port & SEZ ltd 23 30 38 25 26 36 9 Barak valley cement ltd -11 -53 -44 -62 25 2810 Allied computer int. ltd 4 3 39 76 40 2011 Chamical biotech ltd 22 -28 -11 -44 -34 -4112 Vishal info. Technology ltd 17 -19 -13 0 -24 -3213 KSK energy venture ltd 12 63 81 14 21 514 Sejal architectural glass ltd -7 -27 -44 13 16 2915 Avon washing system ltd -3 82 52 140 232 3716 Bafna Pharmaceuticals ltd -5 -15 -37 6 11 1117 Aishwariya telicom ltd -14 -39 -31 -45 -49 -4018 Sita Shree food product ltd 19 48 56 56 28 3219 Niraj cement structureal ltd -3 -33 -31 -38 -28 -3020 Godrej properties ltd -29 4 16 20 -17 -3221 Think soft global service ltd 1 46 28 51 28 1122 Euro multivision ltd 9 -33 -31 -26 -30 1423 C mahendra export ltd 6 -3 38 23 -2 -3324 Punjab &Sind bank -20 -23 -23 -35 -3 6 Power Grid corporation of25 india ltd -12 10 12 4 -27 -12 AVG. TOTAL -0.92 -5 -2.56 1.24 2.76 -5.92 CAAR -0.92 -3 -2.75 -1.75 -0.848 -1.69 57
  58. 58. CHAPTER 6:CONCLUSION 58
  59. 59.  The short-term is positive i.e. Average MAAR is 81.46% and the long-term performance is negative for each month i.e. average CAAR. and short-term performance of IPOs is the positive and the higher chance to earn return in short-term IPOs for Indian investor. The long-term performance of these companies shows that investment in Indian IPOs provides negative abnormal return by the end of the 36 month The short-term performance of these companies shows that investment in Indian IPOs provides positive abnormal return by the end of the first trading day. And the higher chance to earn profit in short-term IPOs for Indian invertors This study shows that investment in IPOs generally negative benefit to Indian investor in long term IPOs. And positive for short-term IPOs. 59
  60. 60. CHAPTER 7:Bibliography 60
  61. 61.  Book: The IPOs Decision: Why And How Companies Go Public, Jason Draho, 2nd Edition. Magazines : Capital Marketing (March, Jun, Sept, Des. - 2010) Web sites : WWW.Capital Market.Com WWW.Money Controal.Com WWW.yahoofinance.com Www.indiaadvantage.co.in 61

×